ORLANDO, Florida, July 23 (Reuters) - So much for the

bond vigilantes.

The U.S. bond market has been remarkably calm lately,

despite fears that inflation, tariffs, eroding Fed independence,

and Washington's ballooning debt load will push up Treasury

yields. What explains the resilience?

The above concerns remain valid, of course, as any one of

them could eventually cast a long shadow over the world's

largest and most important market.

But that doesn't seem to be on the immediate horizon. The

so-called bond vigilantes - those investors determined to bring

profligate governments into line by forcing up their borrowing

costs - might have been driving bond prices lower earlier this

year, but they are taking a back seat now.

The 10-year Treasury yield on Tuesday closed at 4.34%.

That's below the year-to-date average of 4.40%, and less than 10

basis points above the one- and two-year averages.

Perhaps even more surprising, implied Treasury market

volatility is hovering at its lowest levels in three-and-a-half

years, further evidence that investors have little fear of an

imminent spike in borrowing costs.

OVERSEAS DEMAND

The obvious explanation is that demand for Treasuries has

picked up, investors lured back into the market by attractive

yields on 10-year bonds approaching 5% and even juicer returns

on 30-year paper. Concern about an economic slowdown, and thus

lower interest rates, is likely adding fuel to this trend.

A lot of this demand has likely come from overseas, based on

the latest release of Treasury International Capital flows data.

Admittedly, these figures are released with a lag, but they are

among the most reliable and closely tracked of all international

flows information.

The TIC data show that the foreign official and private

sectors bought a net $146.3 billion of U.S. Treasury notes and

bonds in May on a non valuation-adjusted basis. That's the

second-highest monthly total ever. And if you include corporate

debt, agency bonds and equities, total foreign purchases of U.S.

securities in May were the highest on record.

Private sector investors accounted for roughly 80% of that

total. Their holdings of U.S. Treasuries began to outstrip

official holdings a few years ago, and that trend seems to be

accelerating. They now hold over $5 trillion, compared to the

official sector's $4 trillion.

Bank of America's ( BAC ) U.S. rates strategy team notes that

outsized foreign private demand has also been evident in more

recent flows data, particularly from Japanese investors who have

bought more than $60 billion in overseas bonds since the start

of May.

Demand from private sector buyers like pension funds is

generally thought to be more price-sensitive than reserve

managers and sovereign wealth funds, who are more inclined to

buy and hold for the very long term.

REGULATION, STABLECOINS

Will the back end of the yield curve remain resilient?

This will obviously depend in part on what happens in the

U.S. economy. But there are a few exogenous factors that could

boost demand moving forward, including potential regulatory

changes to the U.S. banking system and the accelerated adoption

of cryptocurrency stablecoins.

First, the Fed has proposed revisions to the supplementary

leverage ratio, which would free up capital for banks to hold

more Treasuries. That could generate an estimated $1.1 trillion

in extra buying capacity.

Next, the increased use of stablecoins, digital tokens that

are pegged 1:1 to highly liquid assets like T-bills, short-dated

bonds or the U.S. dollar, could drive demand for shorter-dated

Treasuries. The House of Representatives last week passed a bill

to create a regulatory framework for stablecoins, and U.S.

President Donald Trump is expected to sign it into law soon.

HIBERNATING BEARS

Despite all this, there are still plenty of bond bears out

there with good reasons to be bearish, not least the $1 trillion

flood of new debt issuance expected before this year is out.

But what the market action in the first half of this year

has shown - filled as it has been with heightened uncertainty

around tariffs, geopolitics, deficits and the Fed - is that bond

market selloffs aren't likely to last long.

That's partly because of the lack of a true alternative. The

near-$30 trillion Treasury market is bigger than the Chinese,

Japanese, French, UK and Italian government bond markets

combined. And it is more than ten times bigger than the German

Bund market, the euro zone's premium safe-haven asset.

Underlying demand is stronger than the vigilantes have

bargained for.

(The opinions expressed here are those of the author, a

columnist for Reuters)